After IBM Daksh, Concentrix scouting for more acquisitions

MUMBAI: Concentrix, which graduated overnight to one of the largest business process outsourcing employers in India with its acquisition of IBM Daksh, finds the margins that IBM scorned very attractive and is scouting for more acquisitions.

"IBM is looking for 60-70% margins, and you're never going to get that in the services business. Where Synnex came from, our gross margins are kind of mid-single digits so when we look at the services business, we get very excited," said Christopher Caldwell, global president for Concentrix.

In September, IBM said it was selling its customer care business — known as IBM Daksh in India — to Concentrix for $505 million. IBM bought Daksh e-Services in 2004 to enter the BPO business.

But the increasing commodisation of the customer care business and IBM's quest for higher margin businesses sparked the sale less than a decade later to Concentrix, the BPO unit of hardware distributor Synnex Corp.

Concentrix, which will have 21,000 employees in India and 25 centres in the country, expects to build on its Indian foundation.

"We're looking at additional centres. We will be building it off of demand. Frankly we've already sat down with customers who are looking for more capacity. And it's also more cities than just centres. We will continue to invest in the Indian market," Caldwell said. Indian BPOs are pulling out of the Indian domestic business blaming low margins, a market that remains very attractive to Concentrix.

Concentrix is also looking for more acquisitions, particularly in the technology sector in India. "We're going to continue to make investments in M&A as a big part of our strategy. India has a lot of smaller technology companies — that have left services but have built these kinds of solutions — so we see some very nice opportunities there."

Concentrix has also formed a strategic partnership with IBM, which now has a 5% stake in its parent, Synnex, as part of the deal.

"In this recent spinoff, IBM will be able to have its cake and eat it too. The sale to Synnex gets the asset and business unit off IBM's balance sheet. But IBM still retains the client relationships and the capacity to integrate call centre services in with its other offerings by having a strategic relationship with the buyer," Peter Bendor-Samuel, chief executive of consulting firm Everest Group, said in a note.

When the Daksh deal is completed in January, the combined entity will have revenue of about $1.2 billion. Concentrix will take a maximum of 12 months to integrate Daksh, Caldwell said. The process is also going to involve talking to Daksh employees, who were shocked by IBM's sale and were worried about their future and their sale to an unknown buyer.